Lost in the hoopla over the FTC's noncompete ban announced on the same day, April 23, the United States Department of Labor (“DOL”) unveiled its final rule significantly raising the minimum-salary threshold to qualify for overtime exemptions under the Fair Labor Standards Act (“FLSA”). If this rule survives likely challenges, millions of previously-exempt employees will lose their exempt status and become entitled to overtime pay unless their employers give them big raises.
The FLSA requires overtime pay when employees work more than forty hours in one workweek; however, it exempts employees covered by the statute's executive, administrative, professional, and highly compensated employee exemptions (the “white-collar exemptions”). To qualify for these exemptions, an employee must perform certain duties and be paid, at a minimum, a specified salary per week, no matter how many hours they work during the week. Under the DOL's new rule, that minimum salary amount will be raised significantly, starting on July 1:
- Executive, administrative, and professional exemptions: On July 1, the minimum salary for these exemptions will increase from the current $684 per week ($35,568 per year) to $844 per week ($43,888 per year). Then, on January 1, 2025, the minimum salary will increase again, to $1,128 per week ($58,656 per year).
- Highly compensated employee exemption: On July 1, the minimum total annual compensation level for exemption as a highly compensated employee (i.e., an employee who also performs one or more exemption test duties) will increase from the current $107,432 to $132,964. Then, on January 1, 2025, the minimum total annual compensation level will increase again, to $151,164.
- Automatic triannual increases: Beginning July 1, 2027, the DOL will implement further increases in the minimum salary for these exemptions every three years.
The final rule will likely face legal challenges, as a similar one did during the Obama administration, and it may ultimately be held unenforceable. Nevertheless, employers should start preparing for the rule's possible implementation now. In the few weeks before July 1, employers should identify which of their employees would be deemed non-exempt under the new minimum salary/total compensation thresholds and consider whether to raise their salaries or to reclassify them as nonexempt. This analysis involves multiple issues, including the financial impact of raises on the business, the potential overtime liability associated with not meeting the new salary requirements, effects on employee benefits, possible changes to timekeeping methods and associated costs, and the rule's interaction with state law and likelihood of surviving legal challenges.
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